I believe the brain trust behind the Obama White House has made a huge tactical error.
As Rahm Emmanuel likes to say, one should “never waste a crisis” — and the White House has done just that.
There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the White House tacked in a different direction, pursuing health care reform.
This was an enormous miscalculation.
I’m not sure who to blame, but the leading suspects (in order) are Larry Summers, Rahm Emmanuel, Tim Geithner, and (perhaps) David Axelrod. Instead of a populist clean up of The Street (ala Eliot Spitzer circa 2,000), Obama advisors allowed a smoldering resentment to take hold and build amongst the electorate. The massive taxpayer wealth transfer to inept, corrupt, incompetent bankers has created huge resentment amongst the populace — regardless of political affiliation.
There was widespread popular support for a full reform of finance. What the White House should have pursued was: 1) Reinstatement of Glass Steagall; 2) Repeal the Commodity Futures Modernization Act; 3) Overturning SEC Bear Stearn exemption allowing 5 biggest firms to leverage up far beyond 12 to one; 4) Regulating the non bank sub-prime lenders; 5) Continuing high risk trades to be compensated regardless of profitibility; 6) Mandating (and enforcing) lending standards, etc.
All of this could have been accomplished in the first 6 months of the Obama administration. The consumer protection stuff could have been tossed in as well, though it was not the cause of the collapse.
What we got instead, was the usual lobbying efforts by the finance industry. They own Congress, lock stock and barrel, and they throttled Financial Reform. It did not help that the Obama economic team is filled with defenders of the Status Quo — primarily Summers, but it appears Geithner also — the dynamic duo that fiddled while the economy burned.
Such dithering can be fatal to an administration.
This was a colossal blunder. Passing reform legislation successfully would have fulfilled the campaign promise of “Change;” it would have created legislative momentum. It could have provided a healthy outlet for the Tea Party anger and the raucous Town Hall meetings. It might have even led to a “throw the Bums out” attitude in the mid-term elections, forcing the most radical de-regulators from office.
Also wasted: The enormous anti-Bush attitude throughout the country that swept team Obama into office. He should have been “Hooverized,” and O should have tapped into that same wave to force the greatest set of Wall Street and Banking regulatory reforms seen since the 1930s.
Instead, we have a White House that appears adrift, and the most importantly, may very well have missed the best chance to clean up Wall Street in five generations.
Never waste a crisis, indeed . . .
Finance Overhaul Falters as ’08 Shock Fades
DAVID ENRICH and DAMIAN PALETTA
WSJ, September 9, 2009
Financial reforms stalled as Congress returns
Reuters, Sep 8, 2009 7:46am
US financial regulatory reform remains work in progress
AFP, September 7, 2009
Most Asia economies reform amid crisis-World Bank
Thomson Reuters 09.08.09, 09:24 PM EDT
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